Finding Your Startup's Path: Lifestyle Business or Built to Scale
For entrepreneurs starting a new business venture, one of the biggest strategic decisions is whether to pursue it as a lifestyle business or build it to scale rapidly. This choice will have profound implications on every aspect of the journey, from how you spend your time to the types of investors and employees you'll need to bring on board.
There's no right or wrong answer - both paths have their merits and drawbacks. The key is understanding yourself, your goals, and what each route entails so you can make an intentional choice aligned with your vision for the business and your life.
The Lifestyle Business Route
A lifestyle business is one designed to provide the founder(s) with a livelihood and the lifestyle they desire, rather than pursuing maximum growth and scale. Some key characteristics:
• Slower, More Sustainable Pace of Growth
• Funding Primarily from Revenues vs. Outside Investors
• Ability to Be More Selective With Customers/Projects
• Increased Schedule Flexibility
The biggest draw is the freedom and flexibility. As the owner, you get to call the shots on what type of work you take on, how many hours you devote to the business, when you want to disconnect completely, and more. It's a path that can allow for a healthier integration of work and personal life.
For some founders, that's the whole point - they want to get off the corporate treadmill and build a business that better suits their lifestyle. For others, the lifestyle model is an initial step before potentially pursuing more aggressive growth down the road.
However, that freedom comes with some restraints as well. With growth happening more gradually and organically through revenue instead of outside funding, there's less ability to rapidly scale operations, hire an army of employees, or implement ambitious new initiatives.
The tradeoff is a business that provides a good livelihood but may remain fairly localized or niche and take longer to reach higher levels of revenue. It's a tradeoff many lifestyle entrepreneurs are willing to make for the benefit of remaining lean, reducing stress and risk, and maintaining enviable schedule flexibility.
Building to Scale
On the opposite end of the spectrum is the startup focused on achieving rapid, explosive growth and scale. This is the path most people likely envision for a high-growth technology startup, but it applies to any business being built to aggressively capture market share and achieve a nationwide or global footprint. Signs you're on this trajectory:
• Raising Rounds of Venture Capital or Other Outside Investment • Hyper-Focus on Finding Product-Market Fit and Scalable Customer Acquisition • Hiring Employees Rapidly to Expand Capabilities • Exploring Potential Exits Like Acquisitions or IPOs
The pace is furious and stakes are high, as the startup will go through cycles of securing funding and then aiming to grow as quickly as possible before the next funding round. Work-life balance is extremely challenging during these intensive growth phases.
As the founder(s), you'll pour endless hours into the pursuit of product-market fit, efficient customer acquisition channels, building out the team, dealing with investor relations, and much more. Outside activities and spending quality time with family may fall by the wayside for years. For some, that's an acceptable sacrifice to pursue a rare, high-growth opportunity.
The potential payoff of this all-consuming path is building a large, extremely valuable company in a relatively short period of time. This is the stereotypical high-risk, high-reward startup model fueled by venture capital investment.
Of course, the reality is that the vast majority of startups pursuing this trajectory are unsuccessful and fail to reach a lucrative exit. But for those who do achieve a home run, the wealth created in an eighth of the time is exponentially higher than a lifestyle business.
Key Questions to Guide Your Path
With such divergent paths having major implications, how can a founder determine which is the right one? It starts with deep self-reflection on your goals, priorities, appetite for risk, and other key factors:
• What drove you to start this business in the first place? Was it to gain more freedom and flexibility, create a specific product or service you're passionate about, or pursue a promising high-growth market opportunity?
• What are your financial goals and timelines? Are you seeking to simply generate a good income for yourself, or do you aspire to build a much larger, more valuable enterprise?
• How important is maintaining work-life balance and making time for family, hobbies, and other non-work priorities? What are you willing to sacrifice during each phase of the startup journey?
• How much control do you want to maintain over the business? Are you open to giving up portions of equity and control to outside investors?
• What's your appetite for risk - are you comfortable with higher risk but higher potential rewards, or do you prefer a more secure and stable path?
• Where do you derive fulfillment in your work - from maintaining autonomy and pursuing a passion, or from leading a high-growth enterprise and becoming a market leader?
The answers to these self-assessment questions can help reveal your true motivations and priorities. From there, it's a matter of deciding which path better enables you to achieve the goals and lifestyle you desire.
Outside Investors and Employees
It's worth unpacking in more detail how the investor and employee components differ for each path:
Lifestyle businesses generally aim to avoid or minimize outside investment, particularly from VCs or angel investors. The founder retains full control and can run the business based on their own directives. Funding rounds create obligations and pressures to grow that may clash with the desired lifestyle.
The employee base also stays fairly lean - just enough hands on deck to serve customers and keep things running smoothly. There's generally less hiring of specialists since the founder wears many hats and the scope remains narrower.
Startups on a high-growth trajectory, meanwhile, essentially sell equity to outside investors like VCs in exchange for successive cash influxions to fund rapid scaling. While dilutive, this is often necessary to hire talented employees across all functions, invest heavily in sales/marketing to acquire customers, and continuously innovate on the product.
VCs become part of the ownership team with a say in strategy and key decisions. They provide funding with the expectation of employing those resources to grow quickly and eventually achieve a lucrative exit through an acquisition or IPO.
As you can see, the strategies around investors and employees are completely different. For lifestyle entrepreneurs, slow and steady tends to win the race based on their goals. For growth-minded founders, it's about finding the right investment partners and rapidly expanding the team in pursuit of scale.
A Hybrid Third Path?
It's also worth noting that while this article frames it as a binary choice between lifestyle and growth models, those aren't always mutually exclusive paths for a startup.
Some founders may start out with a lifestyle mindset but then achieve enough initial success and product-market fit that pivoting toward hypergrowth becomes viable. Conversely, startups originally focused on growth may shift toward more sustainable, lifestyle-friendly operations if funding runs dry or growth stalls.
The fundamental strategy may evolve over time based on traction, circumstances, and new goals. There's no one-size-fits-all, which is why it's so crucial for founders to have clarity around their personal and business visions at each phase.
Only you can accurately assess whether a particular direction aligns with your deeper motivations and interests. Will you find more fulfillment in crafting a sustainable lifestyle business that integrates seamlessly with life's other priorities? Or is your true drive building a potential world-changing, high-growth enterprise, even if it demands intense sacrifice over prolonged periods?
There's no universal right answer, but exploring these crucial questions will help illuminate the right path for you and your startup. With intentional forethought, you can proactively shape your entrepreneurial journey instead of getting swept along and ending up somewhere misaligned with your core vision.
3rd April 2024